Illinois pension benefits have grown six times faster than state revenues
thesoundingline.com
thesoundingline.com
Or Illinois could find a way to renege without filing for bankruptcy to avoid throwing out the baby with the bathwater.
Perhaps someday Madigan and his political machine will pay for what they’ve done. But likely not.
The thing is: part of a person's paycheck goes into a fund that is supposed to support their pension. So they're not really passing the buck to the next generation, the money they contribute is supposed to be there for them when they retire.
The PROBLEM is that corrupt politicians in the 90s used the pension money and basically lost all of it. So we're in a situation where the money that should have been sitting around for people with pensions to draw from is GONE, and all we can do is scoop and throw until a miracle happens.
edit: I shouldn't editorialize and say "corrupt politicians", please mentally replace that phrase with "The money was badly mishandled"
And also, you're whitewashing the role of public employees. Those "corrupt politicians" are Democrats who keep getting elected with the support of teachers', police, etc., unions. Chicago's pension holidays, for example, resulted in that money going to CPS directly, to support higher salaries and the "pension pickup" (where the school district covered most of teachers' required pension contributions).
Additionally, I agree there were failures at many levels regarding the promises made to the people of Illinois.
Honestly, I don't completely absolve the citizens of Illinois ( Of which I am one ). As the article states, these pension numbers NEVER added up and for some reason people kept buying into the "free golden ponies" narrative.
It would be interesting if ComputerGuru's post was "politicians promised mathematically impossible pensions" instead of "undeserved pensions".
Maybe the replies would have focused on that aspect. The issue is that the unrealistic pensions were promised by politicians instead of competent actuaries. With promises like automatic 3% annual pension increases, they've created an exploding liability that even Norway and Sweden couldn't fulfill. Illinois created promises that exceeded the productive capacity of its citizens' tax base.
And how did those corrupt politicians get into office and stay in office?
I don't KNOW if it was corrupt politicians. Better to say: "The money was badly mishandled"
Yes. In Illinois, that portion is supposed to cover on the order of 10% of their pension, and taxes are (presumably) supposed to cover the other 90%. This figure is including market returns from initial contributions.
Bad mishandling may have made the situation worse, but, even if it had been handled perfectly, it still would have been unworkable.
Doesn't matter if the failure is intentional, luck, whatever.
http://www.sacbee.com/news/politics-government/the-state-wor...
That's hardly unique. It's the expected result when you let the government hold on to money for the future, rather than a bank.
Banks are bound by laws designed to prevent these kind of problems. Governments are not.
Defined-benefit pensions are a form of deferred compensation. State employees in the past accepted lower salaries in exchange for this future benefit. Taking away that pension now would be theft from these people.
I doubt that state employees from previous generations realized that they were agreeing to skim all this money money off of their children and grandchildren, but, nonetheless, here we are. It's a situation where it's going to be impossible to do justice to everyone. But it's going to be important to minimize the injustice. That is probably going to require some concessions on the parts of pensioners - if they don't take a scale back, it's just going to put Illinois on a downward spiral as its most economically productive citizens and businesses emigrate. That's a worse path. It will lead to pensioners suffering an even worse kick in the pocketbook, and create a lot of collateral damage for working people in the process.
The same goes for employee benefits. Something is ok. Luxury is not.
If there is a reasonably comparison between employee pensions and private industry "executive compensation" should be a massive red flag. Being a civil servant should not be about the money.
Its just that pensions are more direct and easy to see.
Illinois has shown that it will willingly take from the people in order to pay current as well as deferred payments to government workers. Below is a link to an article and research that shows that Illinois was far above normal government pay.
From the article below, I quote, "Not only do state workers in Illinois make more than the private-sector workers who pay their salaries, the average pay for state workers in Illinois is out of step with their peers in the other 49 state."
ARTICLE: https://www.illinoispolicy.org/press-releases/state-governme...
RESEARCH PAPER: https://d2dv7hze646xr.cloudfront.net/wp-content/uploads/2016...
My best guess is that Illinois will default (in some manner) on these pensions. The next recession, combined with net population drop, will doom the state's finances beyond repair if they aren't already too far gone.
I'd also recommend looking through this to see how negligent their political leaders have been over the years:
Well that was not the case with California's 1999 pension reform, where pensions were retroactively increased by 50% overnight.[0]
That kind of money doesn't just appear out of nowhere. Many of these cases were transparent scams and the people involved knew it.
[0] http://www.sandiegouniontribune.com/opinion/sd-calpers-menda...
Defined benefit plans are at best a deferred time bomb and at worst a deferred time bomb with a short fuse.
> State employees in the past accepted lower salaries in exchange for this future benefit.
So? If they were that concerned about the future benefits they should have received a defined contribution plan that pours the money into an employee controlled sinking fund. Nothing stops the State from declaring bankruptcy and reneging on its end of this deal.
It may sound callous but if the alternative is raising taxes to the point that nobody is left in Illinois, is that really an alternative? Sometimes you have to amputate an arm to save the patient.
> Taking away that pension now would be theft from these people.
Agreeing to these outrageous pensions with no way to pay for them is theft from all current and future tax payers. This is a scamola run by politicians to buy votes from public sector unions and it needs to end.
Residents didn't directly sign up for these debts. A series of corrupt Democrat politicians who used theses pensions to buy union votes are responsible. While I admit the thought of their personal assets being seized to pay off these obligations does make me smile, I also don't think that'd be legal.
Similarly, it's not the personal assets of the rest of the citizens of Illinois that would be at stake here. There may be an argument for the sale of public assets, owned by the State itself, to cover some part of this in a bankruptcy hearing but I'd imagine there is going to be significant legal challenges to that as well. The optics of literally selling our children's public inheritance to pay off these corrupt deals is not going to play well with the electorate.
The counterparty for these pensions is not the individual residents of the State. It's the State itself, and possibly a subordinate institution. Sinking funds for current employees of those institutions are fair game. Similarly, the rest of the country is not responsible for these debts either.
Isn't this the public sector equivalent of letting a startup pay you in equity? While it may have been characterized as more secure than personal investment, agreeing to this compensation scheme doesn't remove the burden of risk, particularly when the 'startup' offering to pay you later is state government.
Owing a defined-benefit pension is a legal obligation to provide a future revenue stream. It's more like a bond than a stock, and debt generally has priority over equity.
The state has money. The government doesn’t.
It’s no small thing to suggest that people should view the legal obligations of their governments with skepticism. That we should anticipate, and account for the risk of, government default in our employment plans.
Politicians who didn’t want to raise taxes (to increase pay, to attract workers) made promises of deferred compensation (which have to be higher to offset now vs. future). Voters bought it, -hook, line, and sinker-, and the entire state bought public services on credit.
I have a hard time pinning that on the guy doing largely unskilled work for the last 30 years of his life. He may be left holding the bag, but I’m not going to leave him with the blame.
It is a huge thing which should always be on people's mind. Government is the only player on the market who literally owns the rules of the game and can bend or completely change them in their benefit. Which means every promise from them should be viewed with extreme suspicion, as they are both the ones promising it and the ones charged with enforcing the promise, which means it is much easier for them to renege on the promise.
> I have a hard time pinning that on the guy doing largely unskilled work for the last 30 years of his life.
Government employees are not "largely unskilled work", and they are surely not voting against the current setup, as far as I can see. If they did, we could talk about something that is done to them against their will. Right now they are major part of the fraud being perpetuated. They are not some passive victim of some nefarious force, they are active and willing participants of the scheme. Try to cut those benefits or switch them to defined contribution or make them contribute enough to cover the deficit - and see how vocal they'd get.
By the way, startups do have to give you your shares, they just might turn out worthless. Governments promised USD, and were the safest borrowers around for a long time.
I think the truth lies somewhere between here, but the obligations probably can't reasonably be met, and probably never could.
It would be super-cool if the report was about this, but it's not. There's not a shred of evidence given that the compensation given to state workers was over-market.
We've also got some pretty egregious cases to consider, which suggest that there aren't any guard rails around the pension system. The highest-paid pensioner in the state was able to retire at 55, and receives more than half a million annually. Plus the state's better-than-inflation 3% COLA.
The big problem here is that we are expecting people to be bound to promises made by their predecessors, without ever being a party to those original negotiations. When one generation promises itself lavish benefits, to be paid for by future generations, they shouldn't be surprised when those future generations tell them to go pound sand. One of the big problems with the US model of government is that it never erected any enforceable barriers to kicking a can down the road long enough for it to become someone else's problem. It's just so easy to outvote the opposition, when they haven't been born yet.
So now we have this generational warfare, where the grandparents' generation took out loans, had a big party of borrowed prosperity, and then structured the payoffs to happen after they were all dead. Then the parents' generation decided they could only afford to have 2 kids instead of 3, and immigrants were no longer welcome, because jobs. Then that dead, skeletal hand finally reaches across the years to give young people a giant, bony middle finger, and then pick their nearly-empty pockets.
If those kids think school shootings are a threat to their lives, just wait until they graduate, and 80% of everything they earn is actually going toward helping the grandmas and grandpas pay for their little blue pills while breeding antibiotic-resistant gonorrhea in their luxury retirement communities. They'll want those guns back, when they're out nationalizing the assets of retirees, and herding them into assisted-living ghettos, chewing through property portfolios in order from eldest to youngest. That's what springs to mind whenever I think about Illinois's pension problem: "Screw you, you entitled assholes; you're going to get what's coming to you, and it isn't money."
They're also one of the few sectors of our working economy readily represented by unions.
My take on this is not that the public sector somehow struck it rich, but that the rest of us--those of us in the private sector--have had the screws put to us for a long long time, and that's why the public sector now looks fat and happy.
They didn't strike it rich, we struck it poor.
Since they can't attract candidates as effectively (frankly, that nice pension plan isn't nearly enough to make up for the crummy salary relative to what I can earn elsewhere), they aren't getting as many opportunities to hire really ambitious people. This has repercussions that play out in all sorts of ways, but, being a tech guy, the one I am most aware of is that acquaintances complain that the city often relies overmuch on low-tech and highly manual procedures for accomplishing basic tasks, because nobody is really motivated to streamline them. That results in lower per-employee productivity, which, in turn, increases the headcount requirements. Which, I'm guessing, increases overall labor costs relative to what they could be otherwise.
So it's not that the state's salary and pension costs are high because employees are well-compensated, it's actually something of the opposite.
http://www.oprfhs.org/human-resources/documents/Over75KRepor...
At 50 names a page, you're on the bottom of the third page before you see the first person who isn't taking home six figures in base pay plus cash extra pay, before factoring in benefits.
These teachers are all part of the TRS pension plan and get lifetime pension at retirement. That's the jewel of the benefits package, but the rest of their benefits are pretty fucking excellent, too: cheap health insurance, huge numbers of vacation days.
Say what you will about the importance of teaching (and the fact that these comp numbers are perceived to flow right back into property values), these are not standard deals in the private market. They are, from the day you start your job to the day you retire, superior to the deal most private sector workers get.
Just curious, how does the teaching compare with other schools in other states. I've been saying for a while that teachers should have high salaries like that because for one it matches the rhetoric of "think of the children" / "children first", and that teaching should be a prestigious job in line with engineer, finance, doctor or lawyer. So here is a case were salaries seem to be in the ballpark of being "prestigious" would you say the quality of teaching and the environment in school is correspondingly better?
And they get 2 months of summer off.
Those aren't salary, but they are benefits that should be considered.
Somebody has to take the punch bowl away and make us pay what’s come due.
Why is it public-sector retirees in particular who must pay that price? Again, they have moral and legal claims on their pensions, and they (largely low and moderate income households) are not the primary beneficiaries of decades of low taxes that left state pensions underfunded.
Because they have voted in the politicians who perpetrated the fraud, and gladly bought into it. Public sector unions are one of the largest political donors.
There are four solutions to this problem: austerity (cutting spending and/or raising taxes), default (cutting benefits), borrowing and federal bail-out. At this point, the first postpones the second if borrowing or a bail-out aren’t options. (Borrowing explicitly postpones it.)
Note that “default” doesn’t mean unilateral cutting. It is politically negotiated, and may involve the state giving pensioners something in exchange for reduced cash benefits.
Attempting to elide the two together under one term fundamentally misrepresents the politics of the situation and makes two very different options sound equally unpalatable.
There are plenty of government unions that did bargain for lower salaries in exchange for higher retirement benefits, (for example, many teachers' unions did) but those unions won't be found in Illinois.
The trick here is there's nothing to "take away". These benefits exist only as promises - there's no funding for them. If I promise to you if you work for me for a decade I will give you a trillion dollars, and then turns out I don't actually have the trillion dollars, the theft - or, more precisely, the fraud - doesn't happen when the lack of the trillion dollars is revealed. It happened when I promised you the trillion dollars without having it. The theft from these people has already happened - that's what people fail to realize.
Except it's not true. Teachers in Illinois, for example, earn about $65,000 on average. In the U.K., which has high teacher salaries compared to the OECD, is around 28,000 pounds (roughly $42,000 at typical exchange rates). https://www.independent.co.uk/news/youngest-and-the-best-pai.... Same is true for police, etc.
Teachers only look relatively underpaid if you lump all college graduates together and look at average salaries. That number is heavily skewed, because many of our executives and professionals (bankers, doctors, lawyers, programmers) are paid multiples more than in Europe. That just means those people are paid too much, not that teachers are paid too little.
That's hardly shocking. My salary would go down if I switched from programming (which I've been doing for decades) to something else, too.
let alone far too many of the pension systems allow workers to game the system and end up with more in retirement than in service. there are many systems where the last three years pay can be used as the basis for the pension and stacking overtime and hoarding vacation are common place means of spiking the returns.
that is the abuse that bankrupts systems. the lower end government worker gets the shaft while the higher up politicians and police and fire rake in 100k retirements.
The same is true if its a private or state entity. You either get money or assets in hand, or its effectively vapor. It also shows that working for the government may be stable, its certainly not good for pay.
All parties agreed to a contract. They "deserved" it because that's what the contract said.
It's crummy that the state made promises it's now reneging on, but that in no way makes any sort of pension offer "undeserved."
This is a contract issue, not a moral one.
Or, think of a similar situation: the old guy who's fired shortly before retirement so that he doesn't qualify for his pension. The company says his performance was fine, but didn't want to pay a pension. Do we then conclude that his pension was "undeserved"? Of course not.
Illinois has significant assets and the power of taxation over a large economy. I can't see a court just allowing them to discharge their obligations. It's also not clear that states _can_ declare bankruptcy.
I think a federal bailout of some kind is more likely, not a better idea necessarily, but more likely.
At least in my D.C. circles, the Puerto Rico bail-out bill was framed as a dry run for Illinios.
http://abcnews.go.com/International/wireStory/puerto-rico-re...
We will all pay in the end though, via the reduced value of the US dollar. Just have to make sure we stay ahead of inflation, and try not to live in the jurisdictions with the worst finances, because they're quality of life will probably steadily erode.
In each of your comments you defend the pensioners, which is fine, but there's a limited pool of money. We live in the real world where you have to work within the confines of reality. Opining about how unfair it is to cut pensions doesn't solve anything or move the conversation forward. It's little more than whining.
That's one solution.
Here's one article of many, many you can find:
https://www.citylab.com/equity/2016/06/do-taxes-really-cause...
The closing paragraph:
"Ultimately, the study finds that, while some millionaires do move to lower-tax destinations, the overall rate of millionaire migration is extremely low. When all is said and done, the super-rich tend to migrate less then the rest of us. The reason for this is simple—most people depend on the places they live for their incomes, since their businesses are based there. Indeed, this new study confirms an increasingly important fact of our economic geography: because some places generate a lot more wealth than others, the amount of money we make is largely tied to where we live."
You’ve never been to Illinois, have you?
State workers here run The Democratic Machine. They are effectively the willing soldiers of an organized crime syndicate, getting paid exorbitant sums to perform little work.
And they all get “promoted” just before their 25 years are up so they pull the maximum pension possible.
The results of this is a political trap without an easy exit: Impose punitive taxes on the working population and you'll strangle the economy and incite capital flight and outright rebellion. Form a consensus with other mainstream politicians to slash pensions and benefits, and you'll push the pensioner voting bloc into the arms of whatever extremists promise to protect their interests. And you can't allow large-scale immigration to correct the demographic imbalance and raise tax revenues, because the same pensioner voting bloc is also rabidly anti-immigration.
Brexit was a first taste of this: The 1997 Labour government saw the demographic and revenue crisis coming and thought EU migration was a solution. But the long-term result was to inspire an anti-immigration and anti-EU movement amongst older voters that has forced the country out of the EU. In Germany you see the same forces at work with the rise of AFD, and in France with the FN. This is going to get a lot worse before it gets any better.
But since the politicians invented mass immigration that conversation has seemingly disappeared.
Politicians have engineered a massive ethnic and cultural shift inside their own countries without asking anyone just to keep infinite growth going, which doesn't sound like it'll work long term and has resulted in the rise of the right.
It's pretty insane what they've done, apparently a 1/3 of all children today in the UK have at least one immigrant parent.
Solution: You can't vote your first 17 years and you can't vote your last 17 years. The average life expectancy in the US is ~78 years so you can't vote after 61, periodically adjusted for changes in avg. life expectancy.
Either way, remove the government from these long term obligations with easily corruptible pots of money, and the problem fixes itself. And you get transparent, accurate accounting of government costs instead of the manipulable numbers we get now, which of course politicians and unions fill fight against.
I think you're vastly overestimating the simplicity.
Your 2 proposed solutions and its problems:
>The state simply pays an insurance company for an equivalent annuity.
This requires a willing insurance company that wants to be on the hook for it. The problem is no rational insurance company with competent actuarial skills would calculate that the Illinois premiums payments would be enough to meet 100% future pension obligations. Or, you'd get the alternative scenario where you have a dishonest insurance company just taking the premium payments with no intentions of paying all the pensions and conveniently declaring bankruptcy. Therefore, you'd have the same "unfunded" liability as you have right now.
>Or the state pays the union the normal cost (the cost of whatever defined benefit pension is earned in a year of work), and then it's the union's problem
Again, the union would have to agree to this. The union isn't a puppet of the state such that they would automatically agree to anything the state proposes. The union is an adversary against the state when it comes to negotiating pay and benefits. The union does not want to be on the hook for the increasing future benefits; it wants to the state to have that financial responsibility.
Your "simple" solution requires self-interested actors to do what they don't want to do.
I think there are laws requiring the insurance company to have enough assets or reinsurance to pay the claims if they come due.
I'm sincerely wondering why they aren't working in the US?
People keep using the word "corruption" but I think this situation arose simply because pension funding was continuously deferred. Is the deceptive? Yes, because the state is making promises it can't keep but it's not an example of corruption.
If that doesn't scream corruption, I don't know what does.
https://www.aei.org/wp-content/uploads/2018/03/Automatic-Adj...
Sweden actually just made some great changes to their pension system, and in fact it's no longer a defined benefit plan in the traditional sense, so your benefit is not guaranteed (aka defined). Sweden went ahead and said we're not giving you any promises, and pension payments will be adjusted on an ongoing basis due to demographic and investment return changes.
On the other hand, you have state level and local governments in the United States that have traditional defined benefit pensions (you get at least $x based on this formula, frequently with a built in cost of living increase). Not only that, but some governments baked this into their constitution, so there's no way for these to be reduced. And state and local US governments can't print money, so they only have two options: cut costs and raise taxes.
On top of the above, there are perverse incentives for the people who set the pension benefits. Obviously, the union workers want the most they can get. The politicians need union votes to get elected (everyone in the union votes, but most Americans don't vote in local/state elections). So politicians can choose whichever actuary uses the most liberal assumptions to make the costs seem lower than they are, the unions vote for them, but of course the contributions to the pension fund to ensure these benefits is NOT required. So politicians can also choose to forego them, which they did and leave it for future generations.
Sweden can't run out of money. How many resources they decide to use in their old people is a political decision (taking into account economic factors like inflation and real resources available).
At the end of the day, this is decided by the current generation, so, this narrative of "jeopardizing the future" make not sense. The quality of life of the old people of the future will be determined by the real resources available in the future and the political will of the voters then.
Illinois can run out of money, so, it's not only if they have the will to give a good quality of life to their old people: they could be unable to do that. The reason the federal government could choose to solve the problem it's not because it has more money but because it can issue money.
I strongly suspect that union leaders negotiating big pensions generally do not care much for the welfare of the people they claim to negotiate for (e.g., union workers). Negotiators almost certainly know that what they ask for is unsustainable and that a more sustainable schema will be better for the workers (their benefits wound not have to be trimmed), but negotiating for bigger future payouts brings bigger career benefits and plenty of time to not be associated with this when the system finally fails.
Here's a great example of the way things work in Illinois. The most powerful man is a man named Mike Madigan, speaker of the Illinois House and Chair of the Illinois Democratic Party. He has a fun little trick that he likes to play on the people he serves by essentially stealing money from us via property tax assessments. The first assessment on any property's taxes in Chicago is generally outrageous. It's like this because he wants you to appeal, because Madigan & Getzendanner is Cook County's largest firm in the commercial and industrial appeals process[1]. And rumor has it, they're also the largest in residential property tax appeals, too.
I doubt Sweden's government has such egregious types of government scams. And I'm sure Sweden's government is designed to serve its people, not bleed the powerless dry.
[1] https://www.illinoispolicy.org/investigation-madigan-firm-th...
. It would take approximately 40 years of full contribution to get about 50 % of salary upon retirement in the Swedish pension system( is the rough estimate correct)?
Compare to, e.g., the city of SF, where you only need to work 23 years, and can retire before 60.
Its more accurate to compare America to the EU than to one wealthy EU member state (Sweden)
The root issue is that Illinois is corrupt and short-sided. No one complained about kicking the problem down the road.
This would indicate there is a problem with the design of taxpayer funded pensions.
I'm not sure why you think that what would be (pragmatically in Illinois) giving over state pensions to some state official's cousin to manage at their overextended insurance company that will fail at the first sign of stock weakness would fix anything, or is significantly different from what actually happened.
But the thing is insurers are actually subject to reserving and reporting requirements such that they would more accurately price annuities, and quite frankly, no insurer is stupid enough to offer such lavish defined benefit pensions because they know it's not affordable...unless you have a lien on future taxpayer funds.
I know many people in their 50's that during the dotcom and real estate crashes could not stand the losses and sold near the bottom and are still in all cash. Seems like controlling your own retirement assets is a good system to transfer money from regular people to the market makers/full time stock investors. I think some kind of annuity that you buy every year that kicks in at age 65 or 70 is what most people want. Too bad those have really high commissions and horrible returns.
Who said you have to? Fidelity, Securian, and the likes all offer balanced, automated, diversified 401ks and IRAs. Check the plans, and tell me if there's any concentrating on a given sector.
Not sure how one would set up a system where people can control their own retirement funds and yet not control them. Some system where you can only trade with a one month lead time? Or only allow people to buy those timed funds that mix and match highly diversified stock and bond funds depending on your age. Seems like a hard problem.
The best retirement plan is to raise a family and have successful children that you can depend on (and vice versa).
What it definitely does is take a lot of little problems (at least at government scale) and aggregate it into one whopping big problem bigger than all the little problems combined (because basically we're paying interest on the deferral of those small problems), thus trading a whole bunch of small problems that at least sometimes someone could have fixed or mitigated, into one huge problem that is too large for even the government to fix and for which the individuals involved have no optionality.
It would be nice if there was some way to figure out how to stop governments from "solving" problems that way, as for some of those problems we're already arguably at the end of the road, and we're certainly staring down the barrel of a lot more of them that are no longer so much "decades" in our future as "years" in our future.
There is no good answer that covers all cases.
The only solution is beefing up social security while ensuring transparency and long term (centuries) stability.
But people have to vote and care for this to work.
We give all of our info to Facebook, then complain when "privacy".
We give all of our money to the Government or Union, then complain "it went broke."
If its one thing that I've consistently found among my American friends, its a shocking lack of any kind of long-term financial saving/thinking (note that I say most, not all. And people in the tech industry are generally better about this but not always). Any time they come across some sort of financial windfall, its all spent in vacations, car or a new house. The house at least is a financial investment so I will give you that.
On the other hand, I have very little sympathy for people who are paid well but don't plan wisely. How can you not understand that you need to save money? It takes all of a couple hours to understand the basics of a 401(k) or traditional/Roth IRA, and you don't have to set it up perfectly to have an effective savings plan. I greatly resent the idea that my productivity should be siphoned off to protect the latter group from the consequences of their actions.
I'm also not sold on subsidizing financial firms with the tax benefits of 401Ks and IRAs, but it's better than nothing. But it's obvious that giving politicians a big pot of money to throw around and a lien on future taxpayers is also terrible.
"Value" was only lost if all the assets were sold in 2008. Assuming you were diversified and just had the run of the mill index funds, you'd have tripled your "value" since then. The dollar loses value every day, and it will continue to do so, so you need to make sure you're making more and more of it. Unless you're adept at investing in cash flow businesses and maintaining them, your best bet is via the stock market. At least then you can tread water, and if another recession comes, the government will just print some more again, but at least you'll be treading water with inflation.
"Americans are bad at saving money, but Europeans are much worse" - https://www.marketwatch.com/story/americans-are-bad-at-savin...
Chicago has lost population for three years in a row.
http://www.chicagotribune.com/news/local/breaking/ct-met-chi...
A huge part of why I decided to leave California was because I lost faith in the municipal and state government and didn't feel like funding them anymore. As a high-earning non-citizen, I "vote" with my feet and my taxes.
I guess the point is that you can still pretend it doesn't have to do with you until it's really staring you in the face... and also by my same argument all Americans are also funding US neocolonialism and war etc. by contributing our productivity to the nation. At any rate, I want to emphasize again I'm not saying anyone choosing to stay in Chicago is somehow making an ethically questionable decision, just wanted to bring up this line of thinking for consideration.
Every single person that I work with that complains about taxes and money lives in the suburbs. It's no wonder, of course. Property taxes in many Chicago suburbs are double or even triple than those inside the actual city of Chicago. Many of these people once lived in Chicago, but had kids and then left for a house with a yard in some suburb with good schools and high taxes. "It's cheaper than private school" is how they justify it. They buy a second car and drive it to the train station, paying a monthly parking fee in addition to their monthly train ticket.
I ride a bicycle to and from work, except when it is too wet or slippery to be safe. I take the bus when that happens. I get home from work and am spending time with my family before the commuter train leaves the station with my suburban colleagues on board. Within a 20 minute walk, we have 5 different parks to choose from. We have some of the best museums and cultural attractions in the world available to us. These places offer free workshops and learning events for children and are required by law to offer a minimum number of days per year of free admission for local residents.
I live in a high-rise building filled with a wide variety of people of all different skin tones. Immigrants from Europe, Asia, Latin America and even Africa. Same sex couples. Interracial couples. Muslims, Catholics and Evangelicals. This has been what my children know as normal and have for their entire lives.
Perhaps you may want to consider that leaving a place like Chicago is the ethically questionable decision, especially if you are concerned about the thought processes, viewpoints, and experiences that are required to make neocolonialism and war seem like good ideas.
SOMEONE has to live in the suburbs
I live in Oak Park, just across Austin, because when we moved here we were concerned about the schools in the neighborhood we wanted (Lincoln Square). We had no trouble finding houses to look at, though! (I sort of regret the decision we made, though I like where we live now.)
In fact, even in the most desirable neighborhoods in the city, it's straightforward to find housing in Chicago. People do not move to the suburbs because there's no room in Chicago. There are cities that have that problem. And Chicago has a lot of problems! But it does not have that problem.
If everyone that disagrees with a government leaves, it almost ensures that government will stay the same. The only voters left are the ones who don't have a problem with the current administration.
Your flat out wrong. If enough taxpayers leave, then government will not have the money to continue spending and stay the same
The Soviet Union essentially fell apart because it ran out of money. If it had unlimited taxpayer funds, it would still be around
Or, why don't you give me a counterexample of someone who "can't afford to leave". A news story would be acceptable.
http://www.chicagotribune.com/news/local/breaking/ct-african...
Moving costs money. Are you suggesting they simply leave everything behind and walk to a new city?
While we're talking about sources, how about a source for your claim that 99.9% of Americans can afford to move to a neighboring state.
Moving to the South is not a lower-class Chicago specific thing, in fact wealthy Jews are moving from New York to Florida. Are they refugees too?
However I consider your claim that 99.9% of Americans can afford to move to a neighboring state highly suspect. I am awaiting a source for that, even a news article.
Other countries (e.g. Canada) address all four of these problems and have pension systems that are widely admired as well funded, well governed, sustainable and savvy investors. The US needs comprehensive reforms to address all four of these points. Without that, any partial solutions such as increased funding or reduced benefits, only serve to delay fixing the system.
For (i), returns should be conservatively based on a bond index rather than an unrealistic 7-7.5% return.
For (ii), pensions provides should be legally required to maintain a small funding surplus (e.g. 105%).
For (iii), pensions should have independent boards comprised of investment professionals that are free of political meddling and actually pay their staff Wall Street level salaries so they can attract top talent to compete, rather than constantly being fleeced by Wall Street.
For (iv) I don't have any specific recommendations, but it would be interesting to see the distribution of benefits for the Illinois pensioners.
It's telling that once non-taxpayer funded pensions were brought to fully account for their promises, they started disappearing. It's just too costly and too unpredictable to promise something 30+ years into the future. It's ridiculous as a concept, I've never heard of anyone else saying with confidence that they can predict that far into the future, yet we have billions and trillions of dollars of liabilities based on these projections.
http://www.wirepoints.com/illinois-state-pensions-overpromis...
The authors of this report are former employees of the Illinois Policy Institute: http://www.wirepoints.com/mark-glennon/ https://www.illinoispolicy.org/author/ilpoliski/
The Illinois Policy Institute is, politely, a conservative think tank: https://en.wikipedia.org/wiki/Illinois_Policy_Institute
The full report plays a lot of games to produce these striking, misleading graphs, like comparing yearly numbers with total values of all future pension liabilities at face value instead of any attempt at NPV. If you're curious to spot more, the 1993 edition of How to Lie With Statistics chapter 7 ("The Semi-Attached Figure") and 9 ("How to Statisticulate") are a lighthearted read.
* Pensions for new employees fall under a tiered system where the benefits are far far lower than the old plans.
* Funding to services (eg higher education) have been cut to divert money to pay for the short falls.
* Almost every new tax is earmarked to pay for old pensions.
So not only do we have to pay more for today's services (tollways, rising transit fees, property taxes, sales tax, college), we have to pay for yesterday's underfunded promises.
Literally inviting you to think that retired state workers make 11x the average salary of working people in Illinois. They do this by comparing the total pensions committed to be paid over a lifetime to people to a bunch of yearly metrics, and most deceptively of all, comparing the rise in total promised pension payments to the rise in inflation during the time that the promises were made.
The people who wrote this report are terrible people who were paid to sell a conclusion, not to study anything. The reason that everything was pushed to pensions was simply a way to pay employees less. If they simply paid their workers, they wouldn't have to promise such a luxurious retirement.
The press has excoriated him (as have much of the public). The fact that he is actually addressing the crisis is commendable, though.
Well since y'all refuse to consolidate governmental units, it will be higher property taxes. A typical suburb with 50,000 people has its own police department, its own fire department, its own library system, its own parks department, road department, etc. Two school systems (K-8 and high school), each with a full administration! Drive your car, cross an intersection, and now you are in some other identical suburb of 50,000 people with all those same governmental units.
I know you want your community to feel like a little village, and your community is better than the one next door, so you'll never vote to combine into one. This is how much it costs.
Someone pays $15000 per year tax on a $280000 house. I pay $9000 per year on a $650000 condo. I share the cost of a police chief with 2.7 million people and you share it with 50,000.
And you wonder why people feel helpless to control the endemic corruption within the Chicago urban limits..
Get out while you can even still sell your home.
Insider info, State Farm is next. Major cuts. Again IL is dead.
Thanks Chicago.
idk why you wouldn't want to be able to do that. if you really can't understand the basics of personal finance, then maybe you could pay into a third party pension service. but in general, i think it is fair to expect guaranteed benefits to be less than the expected value of market appreciation if you just invested that money yourself. if that were not the case, it would be too risky to offer the benefit!
My parents (and their generation) who enjoy robust defined-benefit pensions are laughing at me and my generation for sure.
The first major problem is that the article presents "promised benefits" - equal to the sum of all future pension payouts, which can span as many as 50-60 years into the future - and compares them to ANNUAL state revenue; a comparison which will obviously seem ridiculous. A more accurate comparison would be expected annual payouts vs expected revenue allocated to pensions. An even more accurate comparison would be expected payouts at year X vs (contributions + (expected returns at year X * balance of pension fund at year X) + expected revenue allocated to pensions). After all, pension payouts are funded by a mix of contributions, investment returns, and any state revenues allocated for pension payouts.
Another error is that in the linked analysis where they say they looked at every state's level of underfunding, they state: "According to a recent report from the Hoover Institution, on average, public pensions (state, local and federal employee pension plans) assume that they will achieve a risk free 7.6% return on investment per year, every single year."
This seems very stupid if it were true, but it's not. The Hoover Institution paper actually states that the 7.6% figure is the return these pension funds are expecting, which is reasonable given the historical S&P 500 annual return of 11.83% (since 1928). The Hoover paper makes no mention anywhere that pensions are expecting the return to be "risk free." Furthermore, the paper makes no mention of inflation or "real" returns, and pensions are tied to nominal wages rather than real wages, so it's reasonable to assume that the 7.6% figure is NOT adjusted for inflation - but even if it were, it would be reasonable, given the historical average inflation rate since 1928 of 3%.
Moreover, the Hoover paper rests on the rather dubious assumption that "The appropriate discount rate for a guaranteed nominal pension is the rate on a government bond with a guaranteed nominal return of that same maturity, so for the average plan it would be a Treasury bond with a roughly ten-year maturity." They are saying that pensions should always value their expected returns at the 10-year treasury rate, which is absurd. The only use for using the 10-year T rate is to estimate taxpayer liabilities if everything fell apart.
The real question should be, is it reasonable to expect these returns and inflation rates going forward? I would argue that 11.83% is too high to expect, although if it encourages you to save as much as possible to maximize possible gains, so be it; but that 7.6% is much more reasonable. If I were a pension fund manager, I would expect a more conservative target like 5 or 6%, and allocate anything extra either to an "emergency pension fund" in case of years with a revenue shortfall or allocate the extra to be refunded to the taxpayers.
Sources: https://ycharts.com/indicators/sandp_500_total_return_annual
http://www.calculator.net/inflation-calculator.html?cstartin...
https://www.varetire.org/Pdf/Publications/VRS-Stress-Test-an...
There's a reason that non-taxpayer funded entities have to use much more conservative discount rates, based on high grade bonds. Might be a around 4% or 5%. No reason for taxpayer funded pension plans to be using anything riskier.